The Nigerian National Petroleum Corporation Limited (NNPCL) has signed a $3 billion crude repayment loan with the AFRIEXIM Bank.
Part of the loan, according to the company, would go into supporting the naira and stabilising the foreign exchange market.
The plan is coming amid plan by the Bola Ahmed Tinubu administration to break the vicious cycle of borrowing for public expenditure, which had resulted in huge burden of debt servicing it places on the management of Nigeria’s limited government revenues.
Fresh borrowing plan
Announcing the fresh borrowing plan, a statement from the Nigeria’s oil giant Wednesday said: “The NNPC Ltd and AfriEXIM Bank have jointly signed a commitment letter and Termsheet for an emergency $3 billion crude oil repayment loan.
“The signing, which took place today at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPC Ltd. to support the federal government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market.”
Nigerians react
And their reactions, Nigerians expressed divergent views on the borrowing plan.
While some approved of it, others said it was needless in view of the already huge debt profile of the government.
In a chat Wednesday evening, Professor of Finance and the Capital Market at the Nasarawa State University, Uche Uwaleke, told Blueprint that rather than resort to loan to support the naira and stabilise the FX market, the federal government should have used its external reserve to achieve that purpose.
Uwaleke noted that allowing the NNPC Limited to secure a loan on behalf of the government might make it unattractive to investors.
The float of the FX market has seen a massive leap in the exchange rate moving from the official N445 to a dollar at the I&E Window while at the parallel market, the dollar exchanged at N945 to a dollar.
However, after the meeting between the CBN acting Governor of the CBN and President Tinubu, the current bill was appreciated by N55 on Wednesday.
Analysts said the removal of petrol subsidy by President Tinubu continues to pose teething challenges for the economy.
Also, with Nigeria’s oil production on the decline due to massive crude oil theft, it has become difficult to get forex as demand keeps rising.
Uwaleke said: “Much as intervention in the Forex market by the CBN is desirable, a more cost effective option would have been to use what is left of our external reserves as opposed to taking a loan from Afreximbank or even the IMF.
“The fact that the 3 billion dollars loan was taken by NNPCL, a company still owned 100% by the Federal government with the Ministries of Finance and Petroleum Resources holding 50% share each, makes it more worrisome.
“By implication, the Federal government that is already saddled with huge debt is borrowing to lend to the CBN, when it should have been the other way round. Ultimately, this new loan contracted by the NNPCL adds to the growing public debt and may have been contracted at non concessionary terms being an emergency loan.”
The financial expert told this newspaper that “It’s important that Nigerians, especially the National Assembly, are informed about the terms of the loan and the collateral security involved.
“Without doubt, this 3 billion dollars loan on the balance sheet of NNPCL will make the company less attractive and possibly jeopardize the ongoing plan to private the company by listing it on the Nigerian Exchange,” he told one of our reporters.
NNPCL has capacity to repay loan – Idakolo
On his part, Managing Director SD&D Management Limited Gabriel Idakolo, said Nigerians should not be worried as the NNPCL has the capacity to repay the loan.
He said the injection of the loan into the market would strengthen the naira.
The Central Bank of Nigeria (CBN) under its suspended governor, Godwin Emefiele, had on a weekly basis, injected money into the FX market to defend the naira.
“The major challenge to the continued depreciation of the Naira has been scarcity of forex and the major reason for the Afri-Exim bank is for NNPC to be able to have funds to trade adequately.
“When these funds are injected into the system it would definitely strengthen the Naira against the Dollar. There should be no cause for concern because NNPC is now a Limited Liability Company and it has a right to source for funds for its operations just like any other entity.
“The Federal government has a major stake in NNPC but the corporate governance structure of the company can adequately sustain the loan,” the expert explained.
Tell us loan conditions – Expert
But in his intervention, an economist, Adefolarin Olamilekan, said the said loan by the NNPCL to support the naira only goes to show that the current government is not serious in having a robust fiscal and monetary policy driven by local funding sources.
He said: “This recent action of loan taken by the NNPCL raises questions that beg for answers. First, is the president Tinubu aware of this loan?
“Secondly, what are the conditions attached to this loan? Thirdly, what are the specific areas of the economy this loan is to be applied to apart from the umbrella description given by the NNPCL? Lastly, why the loan at this time when the same NNPCL is yet to come out of the recovery it has been undergoing in the last 8years?”
Adefolarin urged President Tinubu to strictly monitor NNPCL’s management in order to avoid recklessness on the top management.
“Also, NNPCL has never been transparent on all its deals and these latest loan deals must be made public to checkmate abuses. Again, the president must probe deep into the financial activities of NNPCL across board.
“Lastly the Nigerian must question deeply into the rationale for this loan, as its framework look shady and could further cause more economic burden on us all,” he told Blueprint.
Jide Ojo queries source
Also speaking, development consultant and public analyst, Mr Jide Ojo, queried the loan as coming from Afrexim Bank.
He asked if the this deal was following the due process because “we know what happened with the $800m they got from World Bank that the National Assembly still has to give approval and even after that ,there has not been any disbursement.
Ojo said: “The National Assembly are on recess and we are talking of emergency borrowing.
The question is we are not putting the card before the horse . When did President Tinubu realise that he needed $30 billion dollars to buffer the exchange rate?
“Why are we borrowing, when we could have improved on our revenue through the stoppage of oil pipeline vandalism and theft.
“What has the President achieved since he assume office beyond the rhetoric that they have been able to save over N1trillion in the subsidy regime .
“The President has so far spent over 78 days in office and he is expect to appoint Ministers for his cabinet within 60 days, If the Minister of Justice, Minister of Finance and AGF were all in place , they would have been able to peruse the terms and conditions in which the loan is been secured.
“What I feel is that Tinubu and Buhari are the same because he has an economic team in place but what he has done so far is to bloat the appointment of the Ministers and is making it look like a dejavu and making the renewed hope look like a charade.”
Gaskia wants prudent management
Also, Associate Chair-Technical Working group on Protection of Civilians , Jaye Gaskia said essentially, “a crude oil repayment loan is a loan that will advance cash on certain terms, but will be repaid with crude oil (or crude oil sales) at agreed interest rate, in this case 11%.”
He said as part of an integral fiscal policy, in coordination and synergy with monetary policy, it should offer some relief, particularly relieving pressure on scare forex.
He said in the short to medium term, and as part of a broader policy mix and interventions, it should be able to stop the volatility of the exchange rate, and stabilise the forex market. “That ultimately is the aim.”
“It is important to also situate this intervention within the context of the CBN’s clamp down on currency speculators. In that context, both fiscal and monetary interventions will be mutually reinforcing.
“The NNPCL is here acting as a guarantor of the $3b loan from Afrexim Bank, thus enabling both the Federal Government and the CBN to have access to liquid cash outside of the external reserve, for use to periodically intervene in the forex market to shore up the value of the Naira, and reduce the pressure on it.
“Again, since payment is covered through crude oil, it should be easier to actually relay the loan. It is similar in this sense to trade by barter, only in this case it is a trade involving funds for goods, rather than goods for goods.
“If properly implemented and synergy and coordination is ensured in the policy implementation process, then there is a better chance for success,” he said.
